IT and consulting firm CGI Group (CGI Group Stock Quote, Chart, News TSX:GIB.A) hit a bump in the road after its latest earnings report but the stock is still a winner says Brian Madden of Goodreid Investment Counsel, who thinks there’s still upside left to the name.
“We own CGI and we’ve owned it for a number of years and done really well on it,” said Madden, senior vice president and portfolio manager at Goodreid, to BNN Bloomberg on Wednesday. “I can certainly see the logic in locking in some of those gains, not because we don’t think the stock will go higher —we do think it will go higher, which is why we continue to hold a core weighting in it.”
“But our practice is whenever a stock becomes an undue concentration in the portfolio we will trim it and take partial profits,” Madden said.
CGI Group’s stock had been climbing nicely since the beginning of the year, rising 27 per cent to reach an all-time high of $106.11 by July 26, but the stock took a tumble with the company’s third quarter financials, which while largely meeting analysts’ expectations was a tad short on revenue.
Montreal-based CGI reported revenue of $3.12 billion, up 6.1 per cent year-over-year but slightly missing the consensus expectation of $3.15. Adjusted earnings came in-line with the Street’s estimate at $337.2 million, an 8.9-per-cent year-over-year increase, or $1.22 per share.
Nevertheless, the stock has dropped 3.4 per cent since the Q3 release on July 31.
Drilling down, the company’s quarterly bookings came in at $2.95 billion with a backlog at $22.42 billion, pretty much even with last year’s $22.41 billion. Cash provided by operating activities was $375.2 million, up by $57.9 million year-over-year, with a net debt of $2.336 billion compared to $1.685 billion a year ago and a cash position of $1.32 billion in available cash and unused credit facilities.
“I am pleased with this quarter’s results of continued revenue growth and profitability expansion as we execute our build and buy strategy in every operating segment,” CEO George D. Schindler said in the quarterly press release. “We continue to see strong client demand for our end-to-end services worldwide.”
National Bank Financial agrees, CGI Stock is still a buy…
CGI is still a buy, according to National Bank analyst Richard Tse, who said the quarterly results didn’t change his positive stance on the stock.
“As we see it, CGI has been running the court building its pipeline in recent years with digital transformation deals. That pipeline of active deals has also been made up of larger engagements and when combined with a consolidation of vendors, it’s creating extended sales cycles,” wrote Tse in a report to clients on July 31. Tse continues to rate GIB.A as “Outperform” with a 17-per-cent 12-month return to target.
“We continue to like GIB.a for its defensive attributes (recurring revenue and cash flow) and growth optionality (acquisitions, organic growth and margin expansion),” Tse said.
At press time, shares of CGI Group on the Toronto Stock Exchange were up 0.5 per cent to $101.22 as more than 37-million shares changed hands.
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